BLUEFIELD — Recognizing a “remarkable transformation” in the demeanor, attitude and cooperation of Terry Lee Church, the former senior vice president of the failed First National Bank of Keystone, the federal judge who has presided over almost all of the civil and criminal matters related to the bank collapse ordered a significant reduction in the banker’s sentence.

Chief Judge David A. Faber of the Southern District of West Virginia cut Church’s remaining prison term in half and re-sentenced her to a new term of 12 years in prison. All told, Church’s sentence for her three federal convictions resulted in her receiving a total of 29 years and 29 days in prison, according to calculations made by her court-appointed lawyer, Federal Public Defender Mary Lou Newberger. The defense told the court that Church has already served 64 and one-half months in prison.

Church, 52, made her apologies to the shareholders and employees of FNB Keystone who lost millions of dollars in the bank’s Sept. 1, 1999 collapse, just as she had in previous sentencing hearings. However, at Monday’s Rule 35 (b) sentence reduction hearing, she extended her apologies to include the court and her federal prosecutors, Assistant U.S. Attorney Susan M. Arnold and John A. Michelich, senior trial attorney for the fraud section of the U.S. Department of Justice Criminal Division.

“When the bank closed, I knew I was guilty of illegal activity,” Church said. “I knew, and I participated in it.”

She told the court she has no reason to lie, and while she said she knew it was “not good to talk ill of the dead,” she said that “the bank really failed in the mid-1980s” when former president, J. Knox McConnell allowed loans to fail and instructed bank personnel to falsify records so “the bank showed profit.”

When McConnell died on Oct. 26, 1997, she said the responsibility of running the bank “fell on my shoulders.” She said that “everybody (at the bank) liked Knox, but they were afraid of him.” She said that she feared McConnell just like other employees. “Knox has hit and kicked me,” she told the court. “He pulled a gun on me and Billie (Cherry, bank board chairman at the time of the collapse). He threatened to kill us and kill himself” if we didn’t do what he wanted us to do, she said.

Church did not speak kindly of the firm she hired to represent her on her October 1999 obstruction and conspiracy charge. She said her lawyers instructed her “to act tough” and not to be intimidated by the prosecution. After the jury returned a guilty verdict in April of 2000, she said her counsel told her to expect to be sentenced to 18-36 months. She was shocked when she was sentenced to 57 months and when she was sent straight to prison.

She said that Newberger was assigned to her after her first conviction She told the court that “I would have taken a plea” in her second trial, but she refused to testify against Cherry. “I love her as a mother,” she said of Cherry. Church and Cherry were found guilty of various fraud and money laundering charges by a federal jury in Parkersburg on Oct. 12, 2001.

She characterized her stay in prison as being “very lonely” and said she learned to “know her friends, watch her back and trust in the Lord. Being in prison is no picnic,” she said. She told the court that she teaches English as a second language from 7 a.m., to 3 p.m., Monday through Friday for 27 cents per hour, and teaches some evening classes for free.

“My family stuck by me,” she said, then informed the court that her husband, Hermie Church, has had serious health problems. She said her father died in January and that she wasn’t allowed to attend his funeral.

“I’m not trying to make Knox a scapegoat,” she said. “I’ve lived for the past six years with this guilt.” She expressed her appreciation to Faber for treating her fairly and with respect.

Faber granted the government’s Rule 35 (b) motion, then explained the factors the court hopes to achieve through sentencing. “I’ve seen a remarkable transformation in the defendant,” Faber said. Still, he noted that the Keystone collapse was “one of the most serious bank failures in American history,” and that the resulting “devastation is almost inconceivable.”

Faber said he had given the matter considerable thought, and said he will “have you serve 144 months ... from now.”

Prior to Church’s presentation, Newberger cleared up two matters in her memorandum in support of the Rule 35 motion. She said she misunderstood Church with respect to how the criminal prosecution advanced following an interview she gave the FDIC after her first conviction. She also said that she made reference to a deposition that followed her third conviction, rather than the first. The government questioned those points in their response to Newberger’s memorandum.

After the sentencing, Michelich and Arnold walked to the defense table and shook hands with Church. The defendant appeared to have lost a considerable amount of weight, even since her 2003 appearance as an FDIC witness in a federal civil case against Daniel Melgar, the architect of the bank’s ill-fated loan securitization program.

Arnold declined comment after the hearing, except to say the court is very familiar with the case and that she respects the court. Newberger declined comment.

– Contact Bill Archer at barcher@bdtonline.com

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